Norms soon for MFs' foray into gold exchange trade fund

The Securities Exchange Board of India (Sebi) will soon come up with the guidelines for allowing mutual funds to launch gold exchange traded funds (GETF).

An internal committee headed by Sebi member Madhukar is giving final touches to the guidelines that would enable an investor to convert gold ornaments into tradeable mutual fund units and get a return on it.

"We will come out with the guidelines on GETF shortly," said a senior Sebi official.

Some of the mutual funds such as UTI AMC are waiting for the Sebi regulations to launch the GETF.UTI AMC is ready with the basic structure of the scheme but is unable to launch it till UTI AMC spells out the norms.

The move assumes significance as it would allow an individual to get a capital appreciation from his or her gold assets even if the prices of gold falls over a period of time.

GETF units, which can also be bought by pledging gold ornaments or paying cash, will give an opportunity to the common man to convert his units into gold as and when he or she desires.

Mutual funds have to tie up with banks who could act as a "custodian" for exchanging the gold ornaments into units of GETF. The custodian bank will have to carry out valuation of ornaments and provide GETF units for equivalent amount.

Although the minimum investment for a GETF unit is yet to be ascertained, UTI AMC sources said it could be Rs 10 per unit as it is the case for any other mutual fund scheme.

However, an investor who pledges gold ornaments to buy GETF units can not get back the original ornaments. Instead, they would be offered gold bars or biscuits of equivalent value by the custodian bank.

In his budget speech, finance minister P Chidambaram proposed the concept of GETF, which would change the role of gold from being a mere asset to a highly liquid and tradeable commodity.

It will also boost the Rs 1,30,000 crore mutual fund industry, which relies mostly on bonds and equities as their investment avenues.

Sebi, in consultation with the Reserve Bank of India, is slated to come out with a guideline on GETF with gold as an underlying asset.